Landlords and their managing agents will welcome a Court of Appeal ruling that rents paid by tenants in advance will not be treated as a deposit, inadvertently prejudicing their potential ability to serve notice to quit.
There has been doubt over whether rent paid in advance (usually covering the first six months of a tenancy) should legally be treated as a deposit. This is important as it can affect the legal validity of notices to quit served by landlords.
In a recent case, a tenant with a risky credit rating was asked to pay six months’ rent in advance under an assured shorthold tenancy, as well as her deposit. A clause was inserted into the tenancy agreement to provide for this, but a previous clause saying the rent was payable monthly was left in, leading to an inconsistency.
The landlord later served notice to quit. If the six months’ rent was a deposit, the notice was invalid because the payment would then be a ‘security’ for the performance of the tenant’s obligations or the discharge of any of her liabilities, under the law. The tenant therefore claimed it was a deposit.
The Court of Appeal considered the question: if the landlord asked the tenant to pay the rent for one of the months covered by the six-monthly advance, would she have done so? It decided she would have refused on the basis she had already paid rent for that month. The advance was therefore rent, and could not be a deposit or ‘security’.
Landlords and their managing agents can now ask for six months’ rent in advance without it being treated as a deposit and inadvertently prejudicing their ability to serve notice to quit in certain circumstances.
However, they should take care to ensure changes to tenancy agreements to reflect payment of rent in advance do not create inconsistencies in the agreement.
Case ref: Johnson & Ors v Anne Alexander Old  EWCA Civ 415
Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.
This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.